Things didn't go according to plan for my "three stocks to avoid" column last week. The three stocks I thought were going to lose to the market for the week -- Twitter, BJ's Restaurants, and Tesla Motors -- rose 6%, 5%, and 13%, respectively, averaging out to an 8% surge.
The S&P 500 experienced a 2.5% bounce, and all three of the investments I figured would fare worse did the exact opposite. I was wrong, but I have been right in 26 of the past 40 weeks.
Where do I go to next? I see Shopify (SHOP 2.58%), Fat Brands (FAT 0.02%), and Tesla Motors (TSLA 1.56%) as stocks you may want to consider steering clear of this week. Let's go over my near-term concerns with all three investments.
One of the market's best growth stocks over the past few years has been stumbling lately. Business is slowing at Shopify's e-commerce platform. Revenue is slowing. Analysts see Shopify's top-line climbing 24% this year, roughly half of the revenue growth of the weakest year in the past decade. The news gets even worse on the other end of the income statement.
Shopify has fallen short of Wall Street profit targets in two of the past three quarters. Forward estimates have been plunging in recent months, even after adjusting for its recent 10-for-1 stock split. Shopify reports its second-quarter results on Wednesday. The stock is 79% below the all-time high it hit in November. Expectations are low, so it won't take much to send Shopify shares higher. The rub is that recent momentum of the platform operator's fundamentals hasn't been kind.
Let's start by pointing out that Fat Brands is probably not the best name for an owner of several restaurant concepts. Yes, Fatburger was the chain that started it all, but Fat Brands has picked up a decent collection of second-tier brands including Fazoli's, Johnny Rockets, and Marble Slab Creamery over time. All told, Fat Brands owns 17 different concepts that account for 2,300 units run by franchisees around the world.
I'm a fan of the franchising model for the brand owners. It helps expand the concept quickly, and it's the franchisee bearing most of the risks. However, in a climate of rising food, labor, and borrowing costs it does make it challenging to drum up new franchisee partners.
Fat Brands is on this list because it's also among the hundreds of companies reporting fresh financials this week. It will announce its quarterly numbers after Thursday's market close. It's not likely to be pretty. FAT Brands has posted a much larger loss than expected in each of the past four reports, and we're looking at another chunky deficit this time around. A shakeout among restaurant concepts is inevitable at this point, and Fat Brands isn't likely to be able to keep all of its platforms alive in the near future.
I was burned for singling out Tesla Motors as a stock that could take a hit last week. The stock's 13% surge was the biggest gainer of the column. I'm going to go to that well again this week. The market rally last week helped push this high-beta stock higher, but I still think Elon Musk is more than a little distracted these days.
He seems to have excelled at dodging controversies that would trip up lesser leaders. How do you bash a platform you offered to acquire, and then expect to walk away unscathed? How do you impregnate a lower-level executive and not have the board show you the door?
Last week's quarterly report wasn't perfect. The product is great. The stock's valuation is a bit concerning when Musk is juggling so many plates. Some of those plates have to fall.
It's going to be a bumpy road for some of these investments. If you're looking for safe stocks, you aren't likely to find them in Shopify, Fat Brands, and Tesla Motors this week.